Turnbull government uses millions of super accounts to boost budget

The Turnbull government has hoovered up more than $2 billion in inactive superannuation accounts and claimed the revenue as its own, saying it does not trust the superannuation industry to reunite the accounts of millions of Australian workers.

New Tax Office figures show more than 4.1 million "lost" super accounts with balances of up to $6000 have already been taken by the Australian Tax Office but the ATO will not have the power to automatically redistribute them to the account holders unless measures are passed from the May budget.

The budget papers show the government has also added another $1.1 billion taken from inactive accounts to the underlying cash balance over the next four years and will gain $166 million in tax from the super accounts it has scooped up with higher balances thanks to lower fees.

This decision props up the wafer thin $2.2 billion surplus the government has vowed to deliver in 2019-20, despite the expectation that the majority of the money will flow back into the active funds of workers.

Former Department of Finance deputy secretary Stephen Bartos said the accounting was "cheeky."

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"The other way to do it would be to administer it through an agency at arms length from the government where it would be treated as a a liability on their books because they would have to pay it out eventually," he said.

"Our obsession with the underlying cash balance [debt and deficit] may be distorting our thinking about this. What matters most is not how you shift cash around, but what is the most sensible administrative arrangement."

A Tax Office spokesman said between 2013 and 2018, 2.1 million people have successfully consolidated $10.7 billion from inactive super accounts.

Sections of the industry are now lobbying for a mechanism that would allow super funds to transfer inactive accounts between themselves, rather than having to go through the Tax Office.

They argue that with the recent budget measures to abolish fees and insurance on low-balance accounts, members may be better off leaving their super in inactive accounts earning 6 per cent per annum compared to the 2 per cent they will earn in line with inflation when the government seizes them.

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But the government remains concerned that left to their own devices, many of the accounts will never be reunited, after a damning report from the Productivity Commission found this week that millions of Australians were being gouged by fees, insurance premiums and underperforming funds across the sector.

It's understood that Financial Services Minister Kelly O'Dwyer has had to personally write to super funds accused of delaying transfers to other funds.

“For too long too many superannuation funds have stood in the way of Australians consolidating their multiple superannuation accounts," she said. "Instead they would rather see these accounts depleted through fees and charges, even sometimes to zero.”

The escalation comes as Labor faces a looming internal battles over its refusal to back calls for independent directors to be appointed to union-affiliated super boards, potentially excluding those funds from a future top 10 list over governance concerns.

The Productivity Commission has suggested that its final recommendations - expected to be handed down in November- will include such a clause, wedging Labor between the demands of union-affiliated boards and shadow treasurer Chris Bowen's public declarations of being open to reform.

Labor has blocked the independent directors bill in the Senate. It has been stuck there since 2015 after an Industry Super commissioned review by former Reserve Bank governor Bernie Fraser found the independence of directors had no bearing on the performance of union-affiliated funds.

On Tuesday, the Productivity Commission found the average worker could be more than $400,000 better off by the time they retire if workers were given an option of one of the top 10 performing funds, rather than being defaulted into an underperforming fund of their employer's choice.

The Tax Office has asked people who believe they have inactive super accounts to use their online service, where they can proactively merge their accounts using their tax-file number.